Pingus 0.7/Clanlib 0.8/ATI Rage issue loading tutorial background

[derek]

Resource::load_sprite: CL_Error: 'worldmaps/tutorial/layer0'
CL_Error: Couldn't pack all frames into textures

This seems to occur with the official 1161x600 background image
Reducing image to 1025x600 still causes the error.
Reducing to 1024x600 or 1023x600 seems to cause the game to spin around
chewing up cpu and sucking up memory continuously until I kill it.
Last time I killed it, it had reached:
31833 nemo      25   0  340m 256m 6040 R 88.7 25.4   1:15.69 pingus
after less than a minute

1022x600 or lower loads fine. Of course, if the pingu walks to the far
right, he runs into the section where the jpeg wasn't large enough, and
paint gets all screwed up, as before.

I'm not sure what critical limit I'm tipping over, some game use of
video memory maybe?

lspci output for the video card
01:00.0 VGA compatible controller: ATI Technologies Inc Rage 128 RF/SG
AGP (prog-if 00 [VGA])
        Subsystem: ATI Technologies Inc Magnum/Xpert128/X99/Xpert2000
        Control: I/O+ Mem+ BusMaster+ SpecCycle- MemWINV- VGASnoop-
ParErr- Stepping+ SERR- FastB2B-
        Status: Cap+ 66MHz+ UDF- FastB2B+ ParErr- DEVSEL=medium >TAbort-
<TAbort- <MAbort- >SERR- <PERR-
        Latency: 32 (2000ns min), Cache Line Size 08
        Interrupt: pin A routed to IRQ 11
        Region 0: Memory at e4000000 (32-bit, prefetchable) [size=64M]
        Region 1: I/O ports at 9000 [size=256]
        Region 2: Memory at e9000000 (32-bit, non-prefetchable) [size=16K]
        [virtual] Expansion ROM at e8000000 [disabled] [size=128K]
        Capabilities: [50] AGP version 2.0
                Status: RQ=32 Iso- ArqSz=0 Cal=0 SBA+ ITACoh- GART64-
HTrans- 64bit- FW- AGP3- Rate=x1,x2
                Command: RQ=32 ArqSz=0 Cal=0 SBA+ AGP+ GART64- 64bit-
FW- Rate=x1
        Capabilities: [5c] Power Management version 1
                Flags: PMEClk- DSI- D1+ D2- AuxCurrent=0mA
PME(D0-,D1-,D2-,D3hot-,D3cold-)
                Status: D0 PME-Enable- DSel=0 DScale=0 PME-


x11 version is 6.8.2
using ati driver.
xorg.conf
Section "Device"
        Identifier  "Card0"
        Driver      "ati"
        VendorName  "ATI Technologies Inc"
        BoardName   "Rage 128 RF/SG AGP"
        BusID       "PCI:1:0:0"
EndSection

Ideas?  Should I start poking around at xorg.conf video driver parameters?